Driven by a strong environmental headwind, both within and outside the country, several pharma companies in India have recently started raising a red flag on their future earning guidance for the stock market, though citing quite different reasons altogether. Quoting the following two recent examples, I shall illustrate this point:
“For decades, the generic drug business has followed a simple model for growth: wait for a chemical medicine to go off patent, then copy it. But 2018 promises to be one of the industry’s last big bumper crops, with $27.8 billion worth of therapies losing protection. The following year’s haul drops by almost two thirds, and the year after it shrinks even further” – reported the May 27, 2017 article in Bloomberg titled, ‘Pharma Heir Seeks a New Holy Grail as Generic Drugs Run Dry,” quoting the promoter of Glenmark.
Another May 27, 2017 article by Reuters also quoted similar business sentiment, though for a much different reason, of the world’s fifth-largest generic drug maker – Sun Pharma, following similar concerns of Dr. Reddy’s Laboratories Ltd and Lupin Ltd. Here, the promoter of Sun Pharma said, “We may even have a single digit decline in consolidated revenue for full-year 2018 versus full-year 2017.”
These red flags, though signal different reasons, prompt some fundamental questions: Is the global generic drug market, especially the US, slowing down? If so, what then is the real reason of the anticipated business slow-down of large Indian pharma players? Is it due to lesser number of patented products going off-patent in the future years, or is it due to pricing pressure in various countries, including the US, or a combination of several other factors alongside? In this article, I shall deliberate on this emerging concern.
Global generic drug market – the past trend:
Several favorable environmental factors have been fueling the growth of generic drug prescriptions across the world, and the trend continues going north. Currently, the growth of generic drug prescriptions is outpacing the same for the patented ones. According to the April 2017 research study titled “Generic Drugs Market: Global Industry Trends, Manufacturing Process, Share, Size, Growth, Opportunity and Forecast 2017-2022”, published by IMARC, the global generic drug market was valued at around US$ 228.8 Billion in 2016, growing at a CAGR of around 9 percent during 2010-2016.
This trend has been well captured in numbers, from various different angles, in the September 2016 report of Evaluate Pharma, as follows:
Global trend of prescription generic drug sales (2008-2015)
| Year | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
| Global Rx Drug Sales (2015-22) (US$ Billion) | 650 | 663 | 687 | 729 | 717 | 724 | 749 | 742 |
| Growth per Year (%) | +2.0 | +3.5 | +6.1 | (1.6) | +0.9 | +3.5 | (1.0) | |
| Rx Generics Drug Sales (US $Billion) | 53 | 53 | 59 | 65 | 66 | 69 | 74 | 73 |
| Generics as % of Total Rx Drugs | 8.2 | 8.0 | 8.6 | 9.0 | 9.2 | 9.5 | 9.9 | 9.9 |
| % Market at risk to patent expiry or available for new generic drugs entry | 3.0 | 4.0 | 4.0 | 5.0 | 7.0 | 4.0 | 5.0 | 6.0 |
(Table 1: Adapted from the report ‘World Preview 2016, Outlook to 2022’ of EvaluatePharma, September 2016)
The Table 1 shows, while the overall global sales growth of prescription drugs faltered during 2012-15 period, mainly due to after effects of patent expiry of several blockbuster drugs, the general trend of generic drug sales continued to ascend. As we shall see below, the projected trend in the succeeding years is not much different, either.
Global generic drug market – present, and projected future trend:
The global generic drug market is currently growing at a faster pace than the patented drugs, and this overall trend is likely to remain so in future too, as we shall find below.
Globally, North America, and particularly the US, is the largest market for generic drugs. According to the QuintilesIMS 2016 report, generic drugs saved patients and the US health care system US$227 billion in 2015. Although around 89 percent of the total prescriptions in the US are for generic drugs, these constitute just 27 percent of total spending for medicines. In other words, the share of patented drugs, though, just around 11 percent of total prescriptions, contribute 73 percent of the total prescription drug costs.
Backed by the support of Governments for similar reasons, Europe is, and will continue to register impressive growth in this area. Similarly, in Latin America, Brazil is the largest market for generic drugs, contributing 23 percent and 25 percent of the country’s pharma sector by value and by volume, respectively, in 2015.
Major growth drivers to remain the same:
The following major factors would continue to drive the growth of the global generic drug market:
- Patent expiration of innovative drugs
- Increasing aging population
- Healthcare cost containment pressure, including out of pocket drug expenditure
- Government initiatives for the use of low cost generic drugs to treat chronic diseases
- Despite high price competition more leading companies are taking interest in generic drugs especially in emerging markets
India – a major global player for generic drugs:
India and China dominated the generic drug market in the Asia pacific region. India is the largest exporter of the generic drug formulations. A large number of drug manufacturing plants belonging to several Indian players have obtained regulatory approval from the overseas regulators, such as, US-FDA, MHRA-UK, TGA-Australia and MCC-South Africa. Consequently, around 50 percent of the total annual turnover of many large domestic Indian drug manufacturers comes from exports. The top global players in the generic drug market include Teva Pharmaceuticals, Novartis AG, Mylan, Abbott, Actavis Pharma and India’s own Sun Pharma.
No significant change in the future market trend is envisaged:
When I compare the same factors that fueled the growth of global prescription generic drug market in the past years (2008-2015) with the following year (2016), and the research-based projections from 2017-2022, no significant change in the market trend is visible.
Global trend of prescription generic drug sales (2015 – 2022)
| Year | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| Global Rx Drug Sales (2015-22) (US$ Billion) | 742 | 778 | 822 | 873 | 931 | 996 | 1060 | 1121 |
| Growth per Year (%) | (-1.0) | +4.8 | +5.7 | +6.2 | +6.6 | +7.0 | +6.5 | +5.7 |
| Rx Generics Drug Sales (US $Billion) | 73 | 80 | 86 | 92 | 97 | 103 | 109 | 115 |
| Generics as % of Total Rx Drugs | 9.9 | 10.3 | 10.5 | 10.5 | 10.4 | 10.4 | 10.3 | 10.3 |
| % Market at risk to patent expiry or available for new generic drugs entry | 6.0 | 6.0 | 4.0 | 4.0 | 4.0 | 2.0 | 2.0 | 5.0 |
(Table 2: Adapted from the report ‘World Preview 2016, Outlook to 2022’ of EvaluatePharma, September 2016)
The Table 2 shows, the overall global sales growth trend of prescription drugs appears a shade better in 2008-15 period, even with the after effects of patent expiry (Table 1), as compared to 2016-22. The scope for entry of new generic drugs goes below 4 percent of the total prescription drug market only in two years – 2020 and 2021. Thus, any serious concern only on this count for a long-term growth impediment of the global generic drug market, post 2018, doesn’t seem to be based on a solid ground, and is a contentious one. Moreover, the sales trend of prescription generic drugs as a percentage of the total value of all prescription drugs, hovers around 10 percent in this statistical projection, which is again a shade better than around 9 percent of the past comparable years.
What triggered the major pricing pressure?
With its over 40 percent of the total pharmaceutical produce, predominantly generic drug formulations, being exported around the world, India has become one of the fastest growing global manufacturing hubs for medicinal products. According to Pharmaceutical Export Promotion Council of India (Pharmexcil), United States (US) is the largest market for the India’s pharma exports, followed by the United Kingdom (UK), South Africa, Russia, Nigeria, Brazil and Germany.........
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